How to put a price on my business?
Back in 2007, I got laid off from my job, and the following year I launched typeracer.com - the first online multiplayer typing game, which became an instant sensation on the web (it's been mentioned on HN several times over the years).
Over time, TypeRacer grew into a pretty good lifestyle business for me and I haven't had a "real" job in the past 10 years. Now I have an offer from another entrepreneur to sell the site. The offer is in the low six-figures, and while tempting, I was hoping for more.
I wanted to reach out to the HN community before I make a decision to sell. I've never sold a business before, and I could really use some feedback.
My site stats are as follows:
* Registered users: 1,922,104 (the game doesn't require an account to play, so the real numbers are much higher) * Game plays: 94,912,406 total (~250,000/day) * Google Analytics (last 12 months): 13,618,464 sessions (avg. session duration: 09:27), from 6,515,980 users * Revenue: ~$85,000/year from AdSense + another $10,000 from premium account subscriptions and schools
What do you guys think is a fair price to sell this website? That's pretty fair where you have it. The argument would be how many hours does it take to manage. If it's very, very little - it might be worth more. I have bought and sold a few businesses. Even getting six figures is actually high. My business broker always said take away loan repayment before putting a number to it. They always calculate from 80%
loan - before establishing a price. So they would take $95k (I will make it 100k) and pretend the buyer takes on an 80k loan. They would estimate payments as maybe 8-10k a year. So they would take $95k - (8k for loan services - fake buyer situation ) and say the remainder is the price. In your case it would be $85 - $87k. Hope that helps. It seems silly to sell a business that generates $85K/year in passive income for $85K. Just wait a year and bank the income. I plugged some of the numbers the OP gave us into an NPV calculator [1], assuming that the $85K/year drops by $5k each year as advertising economics deteriorate, and got a NPV of of $345K assuming a discount rate of 3% (which is around what you can get with T-bills these days). Purchasing it for $85K implies an IRR of roughly 90%, which is a really, really good investment. The going rate for small passive-income businesses I've heard is around 4x revenues, a bit less if they require significant maintenance or the revenue is declining, which is roughly inline with what the NPV calculations give. This is nuts....4x revenue? It would have to make $10,000,000+ for that to make sense. I really don't want to argue and respect that there are many opinions out there (we all can have one), but OP please ask around to an actual business broker. I have on three businesses this year. The amount of revenue is really important. Basically - can a buyer imagine living off the business? What's his opportunity to cost? (like it takes 15 hrs a week away from other investments). How much capital would someone need to build it from scratch (might be time in your case). That's what I ask when I am considering buying. I think the contrast between our replies is illustrative of why there's so little liquidity in small businesses. Mine was basically "In strictly financial terms, you're nuts to sell for $85-100K." Yours was "As a buyer, you're nuts to buy for more than "$85-100K." What's going on economically is that transaction costs will eat up most of any surplus for a business worth < $1M, and so both statements are true. In practice, the small business owners I know usually just milk their business into the ground. They treat it like an annuity that generates $X of additional income, and if it ceases to become profitable or worth the trouble, they just shut it down. Agreed. > the small business owners I know usually just milk their business into the ground. You're right... I see it all the time. It's hard to someone to even want to buy enough to make an offer. If they do... I always try to flip the role. "how much would you offer for a business that supposedly made $95,000 - in an industry that you maybe unfamiliar with?" That's what a buyer would pay. I think the usual formula is maybe 1-3x earnings for small businesses (under 250k annuall, maybe 3-5x for a really reliable income stream or a record of growth. Yours might be at the lower end since you rely on a traditionally fickle income stream like advertising, which seems to be on the decline.